An international corporation is a corporation that operates business in at least two countries. They mainly produce their products or services in their home country and afterwards import or export their offerings to the countries they operate in. As a business policy they don’t adapt or produce according to the country they are in, their main goal is to have the same offerings in each country they have activity in. They usually don’t have any workers and warehouses in other countries because unlike the multinational corporations, they choose not to invest in the countries they operate in. On the other hand, a local corporation is a corporation that only and solely does business in the country it was established in. They are only dependent to their own economy. Their products or services are customized to meet the needs and requirements of the local environment. Their market strategy is to meet the requirement of the local market be appealing to locals.
Both of these corporations have business risks of their own. For example, because of the different currencies and constantly changing conversion rates in countries, there is no way for international corporations to have the same prices for their produces; therefore they have currency and conversion rate issues. On the other hand, local corporations only have their currency rates to worry about. International corporations can reduce this risk by working with the countries that have a fixed exchange rate, they can also reduce it by buying spot contracts that fix the exchange rates to hedge their risk in case of a fluctuation. Downside of this is that even though the corporation has to pay for the contract, they won’t be able to take any advantages if there are any positive changes in the currency rate. The corporation can also ask to be paid in its home country’s currency but it won’t work for those large corporations that don’t primarily work with other large corporations or make large retail sales. If the corporation can foresee the rate drop, they can always ask to be paid promptly or they can make a deal to be paid by the rate of the day they made the deal so even if the rate changes negatively the corporation won’t lose any money.
Another risk international corporations have to take is political risk. It is quite often for international corporations to have different perspectives on the subject so every time they decide to enter a new country or region they need to know the process perfectly in order to avoid any type of sanctions. On the other hand, local corporations only have to know their own country’s aspect. Things like terror attacks, group riots, a sudden plummeting of the stock market or falling oil prices can push the governments to intervene with the trading activities to protect or preserve their political structure. They can stop international money transfers, increase taxes and they also can change after an election. For example, because of Chinas restrictions on freedom of speech, even Google had to face some political problems when it entered China. And UK’s Brexit proves that even countries that are considered as stable and economically powerful have the same political risks as any other country. If a corporation decides to enter a country that is specifically considered risky, even though it is costly buying a political risk insurance that covers their potential risks will be worth it. They can also reduce their risks by hiring local professionals that can analyze the facts and prepare an exit strategy in case anything political that will put the corporation at risk happens.
International corporations also have the language barriers and cultural differences to overcome. Every country has a tradition and lifestyle of its own, and understanding these differences can make or break the corporations’ future in the country. These differences can affect the corporations sales negatively with great amount, doing a market research to determine the differences before entering the market would reduce the chances of bad sales. Since international corporations don’t change their products or services according to the country if they need change in order to be successful in the market, this step would determine if they will be entering to the country’s market or moving to an another country. If adapting to these differences don’t mean a complete change, the corporation would have a higher chance of entering the market. A cultural difference example would be when Tide detergent company had advertisements in Middle East. They had an advertisement showing dirty clothes on the left, their product in the middle and clean clothes on the right. Simply meaning if you use our detergent your clothes will be clean, right? Well, apparently not really. In Middle East a lot of countries speak languages like Arabic or Hebrew. These languages start reading from right to left, not left to right like any other Western languages. Even though the product that was being advertised was a detergent, it was still confusing to the audience. Because in their perspective clean clothes were getting dirty, therefore the advertisement caused the company to have bad sales. If we were to furthermore explain language barriers with an example, we would use Mercedes-Benz. Mercedes-Benz entered the Chinese under the name of “Bensi” which had the meaning of “rush to die” in Chinese. A language problem like this could easily be avoided by working with local professionals. Because even when working with translators there is a chance of the word having an different meaning other than it’s direct translation therefore having locals in the corporations’ team that can correct this issue would be a better solution. Something like this would never be a problem for a corporation that only operates in its home country.
An another risk for corporations are cyber attacks. Cyber attacks have been named as the biggest risk for corporations in the last few years. These attacks target to gain unauthorized access to any information that businesses hold as confidential to steal, leak or even sell these pieces of information. Every business is in danger of this threat, in fact they will have to face it at least one time in their lifespan. Even though local corporations can easily be targeted and end up bankrupt, their chances are limited with one country. International corporations are in danger of foreign cyber attacks and they not only have their money and their reputation at risk but they most likely have their large amount of customers’ information at risk. A great start for these corporations on reducing their risk would be to educate their workers on risks of using unsecured networks and possible ways cyber attackers can try to steal information from them. They should also have antivirus and anti spyware softwares on each computer, use firewall to protect their internet connection, regularly do vulnerability tests, encrypt their data and lastly purchase a cyber security insurance in case these precautions fail to protect the corporation.
To summarize, this essay explained few of the risks that international corporations face compared to local corporations. Such as different currencies, conversion rates, political issues, language barriers, cultural differences and cyber attacks. If large international corporations want to be successful in the country they enter, they have to take these risks each time. And by doing that, they are also proving their strength and securing their place in international business. The steps these corporations took in order to become an international corporation can guide local corporations that want to expand and have their services or products in a larger scale.
REFERENCES
o https://smallbusiness.chron.com/companies-mitigate-risk-foreign-currency-73294.html
o http://www.tradeready.ca/2018/topics/international-trade-finance/4-ways-mitigate-political-risks/
o https://smallbusiness.chron.com/managing-risks-associated-multinational-corporation-78224.html
o https://www.altalang.com/beyond-words/ad-translation-when-good-campaigns-go-bad/
